What happens to small REFCO customers $$$ ?

Quote from globalfxtrainer:

Jim, isn't that Gain agreement saying that all the money is IN that type of FDIC account with the exception of the margin required to cover open trades....or are you saying that the whole account is exposed?
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FDIC insurance is irrelevant. Margin requirements and deposits are irrelevant. The entire account, at all times, is fully exposed to the credit risk of GAIN Capital or any other unregulated FX broker. The customer receives no insurance and no priority in a broker bankruptcy.

These outfits profit by exposing customer funds to credit risk. Come the day of reckoning, their operators walk away rich, and the customers walk away busted. Customers take the credit risk of financing the operation, while the operators collect the resulting reward. Traders should not be marks. They should demand compensation for their credit risks.
 
Quote from CPTrader:

Due diligence does not solve anything.

The fact that REFCO made mistakes in 1994 does not ean theywill alway spusue th eillegalpath.

A question for you. Would you open an account/prime brokerage relationship with Goldman Sachs? YES!, I hear you say?

So what happens if tomorrow, the GS prop traders suffer a heavy loss on their books, and this is revealed to the markets and some big clients start running for the exits, trading partners, reduce/cut credit ines, etc...... what happens?!

My point is that in theory any well run firm in this biz runs the risk of ruin.. no due diliegcne can predict or prevent this.
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If I had some reason to consider opening an account or prime brokerage relationship with Goldman Sachs, or anywhere else, I would perform my due diligence before I took the risk. I would look both ways before I cross the street.

I would not bury my head in the sand, which seems to your approach.

I don't know if you are a profitable trader, but if you are, then I would predict that you will someday lose everything. I say this because you sound like you fundamentally do not believe in monitoring your risks.
 
Quote from 9th Gate:

The FX business is unregulated for the most part even in the US. The CFTC losses even more power you factor in offshore addresses. Refco futures division would dip into regulated / segregated futures funds, then what do you think their FX division with an offshore address was doing ? Where you wire the funds to and where they end up at the end of the day could be different. Even if the funds show up at the correct account then who regulates that they stay there in an unregulated account ?

I already uncovered what Interbank FX was doing. You send $ to the Bank of West to clear through for Interbank FX located in Utah, but your request for funds withdrawals goes to a NY, NY fax # when the Bank of West (Big bank out west) has no branches in NY,NY ???

If your going to deposit a large amount of $ in an FX broker and want 100:1 leverage I would do it through Gain Capital and opt for the following which is listed on their customer agreement:

Customer Funds. At this time, GAIN offers Customer’s two alternatives for the management of their Excess Margin Deposit. Customer funds not required as Posted Margin for Open Positions may earn a money market rate of interest if they are maintained in a commingled account at a Standard & Poors rated financial institution having a rating of not less than A with total assets of, at least, $100 billion. Alternatively, Customer funds not required for open positions may be maintained in an individually segregated/FDIC insured account if Customer's opening Account Balance is in excess of US$25,000. There will be no interest income paid on Customer funds maintained in segregated account, which will be individually FDIC insured up to $100,000. Cash on deposit in such accounts will, at all times, be subject to the claims of GAIN Capital for amounts due by Customer, including Margin Calls, as described in Section 5 of the Customer Agreement.

This should be the standard for the entire industry. I have enough of a challenge trading, I don't need one with just trying to protect my money.
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If you are interested in this subject google CFTC v. Zelener.

CFTC is trying to regulate FX but there is legal wrangling as to what is a spot contract and what is a futures contract. Not as simple as it seems.

Geo.
 
Quote from Trader5287:

If you are interested in this subject google CFTC v. Zelener.

CFTC is trying to regulate FX but there is legal wrangling as to what is a spot contract and what is a futures contract. Not as simple as it seems.

Geo.
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Great link. Thanks GEO. Here is a post on the CFTC website for others:

The proposed language, however, would apply only to certain retail foreign currency transactions – futures and “futures look-alike” contracts as were involved in the Zelener case. Its scope is narrow, as it also makes clear that legitimate spot transactions (such as the purchase of foreign currency at a currency exchange) are not included within the jurisdiction of the CFTC.

Another Info bit:
Retail forex fraud is a significant concern for the CFTC. In the last 4 years, the CFTC has brought 79 enforcement actions involving forex fraud against unsuspecting retail customers. In these 79 cases, there were 23,000 victims who invested approximately $350 million. Courts have awarded approximately $267 million in customer restitution and civil penalties in these cases. The Commission has been able to recover some funds for distribution to customers, but the total amount of funds frozen and/or distributed is less than $15 million.
 
Quote from jimrockford:

FDIC insurance is irrelevant. Margin requirements and deposits are irrelevant. The entire account, at all times, is fully exposed to the credit risk of GAIN Capital or any other unregulated FX broker. The customer receives no insurance and no priority in a broker bankruptcy.

These outfits profit by exposing customer funds to credit risk. Come the day of reckoning, their operators walk away rich, and the customers walk away busted. Customers take the credit risk of financing the operation, while the operators collect the resulting reward. Traders should not be marks. They should demand compensation for their credit risks.
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Jimrockford you are correct. Something didn't seem right. If I deposit my own $ into an account at a bank and the bank is FDIC insured I would always be able to get some form of interest. Gain sets up the account and keeps the interest and the account is on their books.
 
If it were my money I know what I would do. I was an attorney and I never told people what would happen, I told them what could happen. You always have to allow for "unforseeable" outcomes. Hell it would be mal practice not to.
 
pretty scary... when u read that and see how much bennett, grant & co took away from the firm to the tune of $2bio+ u wonder how he cld let itself get caught for 'only' $400m... unless of course there is a much bigger hole out there thats just waiting to be found... how long more for the current group's DD to complete?
 
why does refco fx allow their clients to still trade they could loose there money and have less assets. Why didnt they suspend trading also? anyone
 
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